QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March
31, 2012

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-33530

BIOFUEL ENERGY CORP.

(Exact name of registrant as specified in
its charter)

Delaware

20-5952523

(State of incorporation)

(I.R.S. employer

identification number)

1600 Broadway, Suite 2200

Denver, Colorado

80202

(Address of principal executive offices)

(Zip Code)

(303) 640-6500

(Registrant’s telephone number, including
area code)

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x
No ¨

Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x
No ¨

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated
filer ¨

(Do not check if a smaller

reporting company)

Smaller reporting company x

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x

Number of shares of Common Stock outstanding
as of May 7, 2012: 106,161,262 exclusive of 809,606 shares held in treasury.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The accompanying interim unaudited condensed
consolidated financial statements of BioFuel Energy Corp. (the “Company”) have been prepared in conformity with accounting
principles generally accepted in the United States of America. The statements are unaudited but reflect all adjustments which,
in the opinion of management, are necessary to fairly present the Company’s financial position and results of operations.
All such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative
of the results for the full year. For further information, refer to the financial statements and notes presented in the Company’s
Annual Report on Form 10-K for the twelve months ended December 31, 2011 (filed with the Securities and Exchange Commission
on March 16, 2012).

2

BioFuel Energy Corp.

Consolidated Balance Sheets

(in thousands, except share data)

(Unaudited)

March 31,
2012

December 31,
2011

Assets

Current assets

Cash and cash equivalents

$

11,687

$

15,139

Accounts receivable

18,331

13,591

Inventories

18,909

26,188

Prepaid expenses

1,925

2,148

Other current assets

119

421

Total current assets

50,971

57,487

Property, plant and equipment, net

229,698

235,888

Debt issuance costs, net

2,502

2,763

Other assets

3,448

3,448

Total assets

$

286,619

$

299,586

Liabilities and equity

Current liabilities

Accounts payable

$

11,261

$

9,380

Current portion of long-term debt

12,662

12,710

Current portion of tax increment financing

370

370

Other current liabilities

1,207

1,992

Total current liabilities

25,500

24,452

Long-term debt, net of current portion

163,784

166,937

Tax increment financing, net of current portion

4,867

4,867

Other non-current liabilities

3,212

3,388

Total liabilities

197,363

199,644

Commitments and contingencies

Equity

BioFuel Energy Corp. stockholders’ equity

Preferred stock, $0.01 par value; 5.0 million shares authorized and no shares outstanding at March 31, 2012 and December 31, 2011

—

—

Common stock, $0.01 par value; 140.0 million shares authorized and 106,960,295 shares outstanding at March 31, 2012 and 105,383,295 shares outstanding at December 31, 2011

1,035

1,035

Class B common stock, $0.01 par value; 75.0 million shares authorized and 18,622,944 shares outstanding at March 31, 2012 and December 31, 2011

186

186

Less common stock held in treasury, at cost, 809,606 shares at March 31, 2012 and December 31, 2011

(4,316

)

(4,316

)

Additional paid-in capital

187,264

186,857

Accumulated deficit

(98,685

)

(89,277

)

Total BioFuel Energy Corp. stockholders’ equity

85,484

94,485

Noncontrolling interest

3,772

5,457

Total equity

89,256

99,942

Total liabilities and equity

$

286,619

$

299,586

The accompanying notes are an integral part
of these financial statements.

The accompanying notes are an integral part
of these financial statements.

6

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

1.
Organization, Nature of Business, and Liquidity Considerations

Organization and Nature of Business

BioFuel Energy Corp. (the “Company”,
“we”, “our” or “us”) produces and sells ethanol, distillers grain and corn oil through its
two ethanol production facilities located in Wood River, Nebraska (“Wood River”) and Fairmont, Minnesota (“Fairmont”).
Both facilities, with a combined annual undenatured nameplate production capacity of approximately 220 million gallons per year
(“Mmgy”), commenced start-up and began commercial operations in June 2008. At each location Cargill, Incorporated (“Cargill”),
with whom we have an extensive commercial relationship, has a strong local presence and owns adjacent grain storage and handling
facilities. Cargill provides corn procurement services, purchases the ethanol we produce and provides transportation logistics
for our two plants under long-term contracts. In addition, we lease their adjacent grain storage and handling facilities at each
of our plants.

We were incorporated as a Delaware corporation
on April 11, 2006 to invest solely in BioFuel Energy, LLC (the “LLC”), a limited liability company organized on January
25, 2006 to build and operate ethanol production facilities in the Midwestern United States. The Company’s headquarters are
located in Denver, Colorado.

At March 31, 2012, the Company owned 85.0%
of the LLC membership units with the remaining 15.0% owned by certain individuals and by certain investment funds affiliated with
some of the original equity investors of the LLC. The Class B common shares of the Company are held by the same individuals and
investment funds who held 18,622,944 membership units in the LLC as of March 31, 2012 that, together with the corresponding Class
B shares, can be exchanged for newly issued shares of common stock of the Company on a one-for-one basis. The proportionate value
of the LLC membership units held by individuals or entities other than the Company are recorded as noncontrolling interest on the
consolidated balance sheets. Holders of shares of Class B common stock have no economic rights but are entitled to one vote for
each share held. Shares of Class B common stock are retired upon exchange of the related membership units in the LLC.

The aggregate book value of the assets
of the LLC at March 31, 2012 and December 31, 2011 was $296.1 million and $309.2 million, respectively, of which substantially
all of such assets are collateral for the LLC’s subsidiaries’ obligations under its senior secured bank facility with
a group of lenders (the “Senior Debt Facility”) (see Note 5 — Long-Term Debt). The Senior Debt Facility
also imposes restrictions on the ability of the LLC’s subsidiaries that own and operate our Wood River and Fairmont plants
to pay dividends or make other distributions to us, which restricts our ability to pay dividends.

Liquidity Considerations

Our operations and cash flows are subject
to wide and unpredictable fluctuations primarily due to changes in commodity prices, specifically, the price of our main commodity
input, corn, relative to the price of our main commodity product, ethanol, which is known in the industry as the “crush spread”.
The prices of these commodities are volatile and beyond our control. As a result of the volatility of the prices for these and
other items, our results fluctuate substantially and in ways that are largely beyond our control. As shown in the accompanying
consolidated financial statements, the Company incurred a net loss of $11.1 million for the three months ended March 31, 2012 due
to narrow commodity margins.

Narrow commodity margins present a significant
risk to our cash flows and liquidity. We have had, and continue to have, limited liquidity, with $11.7 million of cash and
cash equivalents as of March 31, 2012. In addition, we have relied upon extensions of payment terms by Cargill as an
additional source of liquidity and working capital. As of March 31, 2012 we owed Cargill $6.5 million for accounts
payable related to corn purchases. Pursuant to an arrangement with Cargill, we have been permitted to extend corn payment terms
beyond the $10.0 million contractual limit so long as the amounts Cargill owes us for ethanol exceed the accounts payable balance
by an amount that is satisfactory to Cargill. This arrangement may be terminated at any time on little or no notice, in which case
we would need to use cash on hand or other sources of liquidity, if available, to fund our operations.

Should current commodity margins continue
for an extended period of time, we may not generate sufficient cash flow from operations to both service our debt and operate our
plants. We are required to make, under the terms of our Senior Debt Facility, quarterly principal payments in a minimum
amount of $3,150,000, plus accrued interest. We cannot predict when or if crush spreads will fluctuate again or if the current
commodity margins will improve or worsen. If crush spreads were to remain at current levels for an extended period of time, we
may expend all of our sources of liquidity, in which event we would not be able to pay principal and interest on our debt. Any
inability to pay principal and interest on our debt would lead to an event of default under our Senior Debt Facility, which, in
the absence of forbearance, debt service abeyance or other accommodations from our lenders, could require us to seek relief through
a filing under the U.S. Bankruptcy Code. We expect fluctuations in the crush spread to continue.

Since we commenced operations, we have
from time to time entered into derivative financial instruments such as futures contracts, swaps and options contracts with the
objective of limiting our exposure to changes in commodities prices. In the past, we have only been able to conduct such hedging
activities on a limited basis due to our lack of financial resources and, while we are currently engaged in some hedging activities,
we may not have the financial resources to increase or conduct hedging activities in the future.

2. Summary of Significant Accounting Policies

Principles of Consolidation and Noncontrolling Interest

The accompanying consolidated financial
statements include the Company, the LLC and its wholly owned subsidiaries: BFE Holdings, LLC; BFE Operating Company, LLC; Buffalo
Lake Energy, LLC; and Pioneer Trail Energy, LLC. All inter-company balances and transactions have been eliminated in consolidation.
The Company treats all exchanges of LLC membership units for Company common stock as equity transactions, with any difference between
the fair value of the Company’s common stock and the amount by which the noncontrolling interest is adjusted being recognized
in equity.

Use of Estimates

Preparation of financial statements in
conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities and disclosures in the accompanying notes at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company sells its ethanol, distillers
grain and corn oil products under the terms of marketing agreements. Revenue is recognized when risk of loss and title transfers
upon shipment of ethanol, distillers grain or corn oil. In accordance with our marketing agreements, the Company records its revenues
based on the amounts payable to us at the time of our sales of ethanol, distillers grain or corn oil. For our ethanol that is sold
within the United States, the amount payable is equal to the average delivered price per gallon received by the marketing pool
from Cargill’s customers, less average transportation and storage charges incurred by Cargill, and less a commission. We
also sell a portion of our ethanol production to Cargill for export, which sales are shipped undenatured and are excluded from
the marketing pool. For exported ethanol sales, the amount payable is equal to the contracted delivered price per gallon, less
transportation and storage charges, and less a commission. The amount payable for distillers grain and corn oil is equal to the
market price at the time of sale less a commission.

General and administrative expenses consist
of salaries and benefits paid to our management and administrative employees, expenses relating to third party services, travel,
office rent, marketing and other expenses, including certain expenses associated with being a public company, such as fees paid
to our independent auditors associated with our annual audit and quarterly reviews, directors’ fees, and listing and transfer
agent fees.

Cash and Cash Equivalents

Cash and cash equivalents include highly
liquid investments with an original maturity of three months or less. Cash equivalents are currently comprised of money market
mutual funds. At March 31, 2012, we had $11.7 million held at three financial institutions, which is in excess of FDIC insurance
limits.

Accounts Receivable

Accounts receivable are carried at original
invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. Management
determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s
financial condition, credit history and current economic conditions. Receivables are written off when deemed uncollectible. Recoveries
of receivables previously written off are recorded as a reduction to bad debt expense when received. As of March 31, 2012 and December
31, 2011, no allowance was considered necessary.

Concentrations of Credit Risk

Credit risk represents the accounting loss
that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of
credit risk, whether on- or off-balance sheet, that arise from financial instruments exist for groups of customers or counterparties
when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly
affected by changes in economic or other conditions described below.

During the three months ended March 31,
2012 and 2011, the Company recorded sales to Cargill representing 78% and 94%, respectively, of total net sales. As of March 31,
2012 and December 31, 2011, the LLC, through its subsidiaries, had receivables from Cargill of $16.6 million and $12.0 million,
respectively, representing 91% and 88% of total accounts receivable, respectively.

The LLC, through its subsidiaries, purchases
corn, its largest cost component in producing ethanol, from Cargill. During the three months ended March 31, 2012 and 2011, corn
purchases from Cargill totaled $111.8 million and $129.6 million, respectively. As of March 31, 2012 and December 31, 2011, the
LLC, through its subsidiaries, had payables to Cargill of $6.5 million and $5.6 million, respectively, related to corn purchases.

9

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

2. Summary of Significant Accounting Policies – (continued)

Inventories

Raw materials inventories, which consist
primarily of corn, denaturant, supplies and chemicals, and work in process inventories are valued at the lower-of-cost-or-market,
with cost determined on a first-in, first-out basis. Finished goods inventories consist of ethanol and distillers grain and are
stated at lower of average cost or market.

A summary of inventories is as follows
(in thousands):

March 31,
2012

December 31,
2011

Raw materials

$

11,325

$

16,818

Work in process

4,887

5,672

Finished goods

2,697

3,698

$

18,909

$

26,188

Derivative Instruments and Hedging Activities

Derivatives are recognized on the balance
sheet at their fair value and are included in the accompanying balance sheets as “derivative financial instruments”.
On the date the derivative contract is entered into, the Company may designate the derivative as a hedge of a forecasted transaction
or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow”
hedge). Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow
hedge are recorded in other comprehensive income, net of tax effect, until earnings are affected by the variability of cash flows
(e.g., when periodic settlements on a variable rate asset or liability are recorded in earnings). Changes in the fair value of
undesignated derivative instruments or derivatives that do not qualify for hedge accounting are recognized in current period operations.

Accounting guidance for derivatives requires
a company to evaluate contracts to determine whether the contracts are derivatives. Certain contracts that meet the definition
of a derivative may be exempted as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide
for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities
expected to be used or sold over a reasonable period in the normal course of business. The Company’s contracts for corn and
natural gas purchases and ethanol sales that meet these requirements and are designated as either normal purchase or normal sale
contracts are exempted from the derivative accounting and reporting requirements

10

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

2. Summary of Significant Accounting Policies – (continued)

Property, Plant and Equipment

Property, plant and equipment is recorded
at cost. All costs related to purchasing and developing land or the engineering, design and construction of a plant are capitalized.
Maintenance, repairs and minor replacements are charged to operating expenses while major replacements and improvements are capitalized.
Depreciation is computed by the straight line method over the following estimated useful lives:

Years

Land improvements

20 – 30

Buildings and improvements

7 – 40

Machinery and equipment:

Railroad equipment

20 – 39

Facility equipment

20 – 39

Other

5 – 7

Office furniture and equipment

3 – 10

Debt Issuance Costs

Debt issuance costs are stated at cost,
less accumulated amortization. Debt issuance costs included in noncurrent assets at March 31, 2012 and December 31, 2011 represent
costs incurred related to the Company’s Senior Debt Facility and tax increment financing agreements. These costs are being
amortized through interest expense over the term of the related debt. Estimated future debt issuance cost amortization as of March
31, 2012 is as follows (in thousands):

Remainder of 2012

$

763

2013

978

2014

704

2015

8

2016

8

Thereafter

41

Total

$

2,502

11

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

2. Summary of Significant Accounting Policies – (continued)

Impairment of Long-Lived Assets

The Company has two asset groups, its ethanol
facility in Fairmont and its ethanol facility in Wood River, which are evaluated separately when considering whether the carrying
value of these assets has been impaired. The Company continually monitors whether or not events or circumstances exist that would
warrant impairment testing of its long-lived assets. In evaluating whether impairment testing should be performed, the Company
considers several factors including the carrying value of the long-lived assets, projected production volumes at its facilities,
projected ethanol and distillers grain prices that we expect to receive, and projected corn and natural gas costs we expect to
incur. In the ethanol industry, operating margins, and consequently undiscounted future cash flows, are primarily driven by the
crush spread. In the event that the crush spread is sufficiently depressed to result in negative operating cash flow at its facilities
for an extended time period, the Company will evaluate whether an impairment of its long-lived assets may have occurred.

Recoverability is measured by comparing
the carrying value of an asset with estimated undiscounted future cash flows expected to result from the use of the asset and its
eventual disposition. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair
value of the asset. Fair value is determined based on the present value of estimated expected future cash flows using a discount
rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the assets. As of
March 31, 2012, no circumstances existed that would indicate the carrying value of long-lived assets may not be fully recoverable.
Therefore, no recoverability test was performed.

Stock-Based Compensation

Expense associated with stock-based awards
and other forms of equity compensation is based on fair value at grant and recognized on a straight line basis in the financial
statements over the requisite service period for those awards that are expected to vest.

Asset Retirement Obligations

Asset retirement obligations are recognized
when a contractual or legal obligation exists and a reasonable estimate of the amount can be made. Changes to the asset retirement
obligation resulting from revisions to the timing or the amount of the original undiscounted cash flow estimates shall be recognized
as an increase or decrease to both the carrying amount of the asset retirement obligation and the related asset retirement cost
capitalized as part of the related property, plant and equipment. At March 31, 2012, the Company had accrued asset retirement obligation
liabilities of $145,000 and $183,000 for its plants at Wood River and Fairmont, respectively. At December 31, 2011, the Company
had accrued asset retirement obligation liabilities of $144,000 and $181,000 for its plants at Wood River and Fairmont, respectively.

The asset retirement obligations accrued
for Wood River relate to the obligations in our contracts with Cargill and Union Pacific Railroad (“Union Pacific”).
According to the grain elevator lease with Cargill, the equipment that is adjacent to the grain elevator may be required at Cargill’s
discretion to be removed at the end of the lease. In addition, according to the contract with Union Pacific, the buildings that
are built near their land in Wood River may be required at Union Pacific’s request to be removed at the end of our contract
with them. The asset retirement obligations accrued for Fairmont relate to the obligations in our contracts with Cargill and in
our water permit issued by the state of Minnesota. According to the grain elevator lease with Cargill, the equipment that is adjacent
to the grain elevator being leased may be required at Cargill’s discretion to be removed at the end of the lease. In addition,
the water permit in Fairmont requires that we secure all above ground storage tanks whenever we discontinue the use of our equipment
for an extended period of time in Fairmont. The estimated costs of these obligations have been accrued at the current net present
value of these obligations at the end of an estimated 20 year life for each of the plants. These liabilities have corresponding
assets recorded in property, plant and equipment, which are being depreciated over 20 years.

12

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

2. Summary of Significant Accounting Policies – (continued)

Income Taxes

The Company accounts for income taxes using
the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company regularly reviews historical and anticipated future pre-tax results of operations to determine
whether the Company will be able to realize the benefit of its deferred tax assets. A valuation allowance is required to reduce
the potential deferred tax asset when it is more likely than not that all or some portion of the potential deferred tax asset will
not be realized due to the lack of sufficient taxable income. The Company establishes reserves for uncertain tax positions that
reflect its best estimate of deductions and credits that may not be sustained on a more likely than not basis. As the Company has
incurred tax losses since its inception and expects to continue to incur tax losses for the foreseeable future, we will provide
a valuation allowance against deferred tax assets until the Company believes that such assets will be realized. The Company includes
interest on tax deficiencies and income tax penalties in the provision for income taxes.

Fair Value of Financial Instruments

The Company’s financial instruments,
including cash and cash equivalents, accounts receivable, and accounts payable are carried at cost, which approximates their fair
value because of the short-term maturity of these instruments. Any derivative financial instruments are carried at fair value.
The fair value of the Company’s senior debt and notes payable are not materially different from their carrying amounts based
on anticipated interest rates that management believes would currently be available to the Company for similar issues of debt,
taking into account the current credit risk of the Company and other market factors.

Segment Reporting

Operating segments are defined as components
of an enterprise for which separate financial information is available and is evaluated regularly by the chief operating decision
maker or decision making group in deciding how to allocate resources and in assessing performance. Each of our plants is considered
its own unique operating segment under these criteria. However, when two or more operating segments have similar economic characteristics,
accounting guidance allows for them to be aggregated into a single operating segment for purposes of financial reporting. Our two
plants are very similar in all characteristics and accordingly, the Company presents a single reportable segment, the manufacture
of fuel-grade ethanol and the co-products of the ethanol production process.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements
are issued by the Financial Accounting Standards Board (“FASB”) or other standards setting bodies that are adopted
by us as of the specified effective date. Unless otherwise discussed, our management believes that the impact of recently issued
standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

13

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

3. Property, Plant and Equipment

Property, plant and equipment, stated at
cost, consist of the following at March 31, 2012 and December 31, 2011 (in thousands):

March 31,
2012

December 31,
2011

Land and land improvements

$

19,643

$

19,643

Construction in progress

26

1,126

Buildings and improvements

49,832

49,832

Machinery and equipment

249,930

248,247

Office furniture and equipment

6,456

6,432

325,887

325,280

Accumulated depreciation

(96,189

)

(89,392

)

Property, plant and equipment, net

$

229,698

$

235,888

Depreciation expense related to property,
plant and equipment was $6,797,000 and $6,756,000 for the three months ended March 31, 2012 and 2011, respectively.

4. Earnings Per Share

Basic earnings per share are computed by
dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share
are calculated using the treasury stock method and includes the effect of all dilutive securities, including stock options, restricted
stock and Class B common shares. For those periods in which the Company incurred a net loss, the inclusion of the potentially dilutive
shares in the computation of diluted weighted average shares outstanding would have been anti-dilutive to the Company’s loss
per share, and, accordingly, all potentially dilutive shares have been excluded from the computation of diluted weighted average
shares outstanding in those periods.

For the three months ended March 31, 2012
and 2011, 1,458,118 shares and 1,784,811 shares, respectively, issuable upon the exercise of stock options were excluded from the
computation of diluted earnings per share as their effect would have been anti-dilutive.

A summary of the reconciliation of basic
weighted average shares outstanding to diluted weighted average shares outstanding follows:

Three Months Ended March 31,

2012

2011

Weighted average common shares outstanding – basic

102,791,785

71,300,731

Potentially dilutive common stock equivalents

Class B common shares

18,622,944

15,670,578

Stock options

—

25,000

Restricted stock

2,076,508

346,215

20,699,452

16,041,793

123,491,237

87,342,524

Less anti-dilutive common stock equivalents

(20,699,452

)

(16,041,793

)

Weighted average common shares outstanding – diluted

102,791,785

71,300,731

14

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

5. Long-Term Debt

The following table summarizes long-term
debt as of March 31, 2012 and December 31, 2011 (in thousands):

March 31,
2012

December 31,
2011

Term loans

$

173,630

$

176,780

Notes payable

333

380

Capital leases

2,483

2,487

176,446

179,647

Less current portion

(12,662

)

(12,710

)

Long-term portion

$

163,784

$

166,937

Senior Debt Facility

In September 2006, certain subsidiaries
of the LLC (the “Operating Subsidiaries”) entered into the Senior Debt Facility to finance the construction of and
provide working capital to operate our ethanol plants. Neither the Company nor the LLC is a borrower under the Senior Debt Facility,
although the equity interests and assets of our subsidiaries are pledged as collateral to secure the debt under the facility. Principal
payments under the Senior Debt Facility are payable quarterly at a minimum amount of $3,150,000, with additional pre-payments to
be made out of available cash flow. As of March 31, 2012, there remained $173.6 million in aggregate principal amounts outstanding
under the Senior Debt Facility. These term loans mature in September 2014.

Interest rates on the Senior Debt Facility
are, at management’s option, set at: i) a base rate, which is the higher of the federal funds rate plus 0.5% or the administrative
agent’s prime rate, in each case plus a margin of 2.0%; or ii) at LIBOR plus 3.0%. Interest on base rate loans is payable
quarterly and, depending on the LIBOR rate elected, as frequently as monthly on LIBOR loans, but no less frequently than quarterly.
The weighted average interest rate in effect on the borrowings at March 31, 2012 was 3.2%.

The Senior Debt Facility is secured by
a first priority lien on all right, title and interest in and to the Wood River and Fairmont plants and any accounts receivable
or property associated with those plants and a pledge of all of our equity interests in the Operating Subsidiaries. The Operating
Subsidiaries have established collateral deposit accounts maintained by an agent of the banks, into which our revenues are deposited,
subject to security interests to secure any outstanding obligations under the Senior Debt Facility. These funds are then allocated
into various sweep accounts held by the collateral agent, including accounts that provide funds for the operating expenses of the
Operating Subsidiaries. The collateral accounts have various provisions, including historical and prospective debt service coverage
ratios and debt service reserve requirements, which determine whether there is, and the amount of, cash available to the LLC from
the collateral accounts each month. The terms of the Senior Debt Facility also include covenants that impose certain limitations
on, among other things, the ability of the Operating Subsidiaries to incur additional debt, grant liens or encumbrances, declare
or pay dividends or distributions, conduct asset sales or other dispositions, merge or consolidate, and conduct transactions with
affiliates. The terms of the Senior Debt Facility also include customary events of default including failure to meet payment obligations,
failure to pay financial obligations, failure of the Operating Subsidiaries of the LLC to remain solvent and failure to obtain
or maintain required governmental approvals. Under the terms of separate management services agreements between our Operating Subsidiaries
and the LLC, the Operating Subsidiaries pay a monthly management fee of $869,000 to the LLC to cover salaries, rent, and other
operating expenses of the LLC, which payments are unaffected by the terms of the Senior Debt Facility or the collateral accounts.

Debt issuance fees and expenses of $7.9
million ($2.4 million, net of accumulated amortization) have been incurred in connection with the Senior Debt Facility through
March 31, 2012. These costs have been deferred and are being amortized and expensed as interest over the term of the Senior Debt
Facility.

15

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

5. Long-Term Debt – (continued)

Capital Lease

The LLC, through its subsidiary that constructed
the Fairmont plant, has entered into an agreement with the local utility pursuant to which the utility has built and owns and operates
a substation and distribution facility in order to supply electricity to the plant. The LLC is paying a fixed facilities charge
based on the cost of the substation and distribution facility of $34,000 per month, over the 30-year term of the agreement. This
fixed facilities charge is being accounted for as a capital lease in the accompanying financial statements. The agreement also
includes a $25,000 monthly minimum energy charge that also began in the first quarter of 2008.

Notes Payable

Notes payable relate to certain financing
agreements in place at each of our sites. The subsidiaries of the LLC that constructed the plants entered into financing agreements
in the first quarter of 2008 for the purchase of certain rolling stock equipment to be used at the facilities for $748,000. The
notes have fixed interest rates (weighted average rate of approximately 5.6%) and require 48 monthly payments of principal and
interest, maturing in the first and second quarter of 2012. In addition, the subsidiary of the LLC that constructed the Wood River
facility had entered into a note payable for $2,220,000 with a fixed interest rate of 11.8% for the purchase of our natural gas
pipeline. The note required 36 monthly payments of principal and interest and matured in the first quarter of 2011. In addition,
the subsidiary of the LLC that constructed the Wood River facility has entered into a note payable for $419,000 with the City of
Wood River for special assessments related to street, water, and sanitary improvements at our Wood River facility. This note requires
ten annual payments of $58,000, including interest at 6.5% per annum, and matures in 2018.

The following table summarizes the aggregate
maturities of our long-term debt as of March 31, 2012 (in thousands):

Remainder of 2012

$

9,509

2013

12,652

2014

151,636

2015

57

2016

60

Thereafter

2,532

Total

$

176,446

16

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

6. Tax Increment Financing

In February 2007, the subsidiary of the
LLC that constructed the Wood River plant received $6.0 million from the proceeds of a tax increment revenue note issued by the
City of Wood River, Nebraska. The proceeds funded improvements to property owned by the subsidiary. The City of Wood River will
pay the principal and interest of the note from the incremental increase in the property taxes related to the improvements made
to the property. The interest rate on the note is 7.85%. The proceeds have been recorded as a liability which is reduced as the
subsidiary of the LLC remits property taxes to the City of Wood River, which began in 2008 and will continue through 2021. The
LLC has guaranteed the principal and interest of the tax increment revenue note if, for any reason, the City of Wood River fails
to make the required payments to the holder of the note or the subsidiary of the LLC fails to make the required payments to the
City of Wood River.

The following table summarizes the aggregate
maturities of the tax increment financing debt as of March 31, 2012 (in thousands):

Remainder of 2012

$

370

2013

399

2014

431

2015

464

2016

501

Thereafter

3,072

Total

$

5,237

7. Stockholders’ Equity

Rights Offering and LLC Concurrent Private Placement

On September 24, 2010, the Company entered
into a Rights Offering Letter Agreement with certain affiliates of Greenlight Capital, Inc. and certain affiliates of Third Point
LLC pursuant to which the Company conducted a rights offering to its stockholders (the “Rights Offering”). The Rights
Offering entailed a distribution to our common stockholders of rights to purchase depositary shares representing fractional interests
in shares of Series A Non-Voting Convertible Preferred Stock (the “Preferred Stock”). Concurrent with the Rights Offering,
the LLC conducted a private placement of LLC interests that was structured to provide the holders of the membership interests in
the LLC (other than the Company) with a private placement that was economically equivalent to the Rights Offering. On February
2, 2011, the Company’s stockholders approved an increase in the number of authorized shares of common stock of the Company,
which resulted in the automatic conversion of shares of the Preferred Stock into shares of the Company’s common stock such
that subscribers in the Rights Offering were issued one share of common stock in lieu of each depositary share subscribed for.
These transactions were completed and 63,773,603 shares of common stock, at a price of $0.56 per share, and 18,369,262 LLC membership
interests, at a price of $0.56 per unit (along with an equivalent number of shares of Class B common stock), were issued on February
4, 2011. The aggregate gross proceeds of the Rights Offering and the concurrent private placement were $46.0 million. The proceeds
of the transaction were used to (i) repay in full $20.3 million owed under a bridge loan previously provided by certain affiliates
of Greenlight Capital, Inc. and certain affiliates of Third Point LLC, (ii) repay in full $21.5 million owed under our then outstanding
subordinated debt, (iii) repay $2.8 million of debt owed to Cargill and (iv) pay certain fees and expenses incurred in connection
with the Rights Offering and the LLC’s concurrent private placement.

17

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

7. Stockholders’ Equity – (continued)

In contemplation of the Rights Offering,
on September 23, 2010, we entered into a Letter Agreement with Cargill pursuant to which we agreed to (i) use a portion of the
proceeds from the Rights Offering (to the extent available) to repay a portion of certain indebtedness owed to Cargill, upon which
Cargill would forgive a like amount of principal and any accrued interest on such forgiven principal according to its original
terms and (ii) upon successful completion of the Rights Offering, issue a number of depositary shares in exchange for forgiveness
by Cargill of the remaining principal balance of the debt. On February 15, 2011, the Company issued 6,597,790 shares of common
stock to Cargill in exchange for the extinguishment of the remaining amount owed to Cargill. An additional $2.0 million that was
carried on our balance sheet at December 31, 2010 due to troubled debt restructuring accounting was also extinguished. This amount,
in addition to the $2.8 million forgiven, was accounted for as a capital contribution to additional paid-in capital because the
Company and Cargill were considered related parties.

Stock Repurchase Plan

On October 15, 2007, the Company announced
the adoption of a stock repurchase plan authorizing the repurchase of up to $7.5 million of the Company’s common stock. Purchases
will be funded out of cash on hand and made from time to time in the open market. From the inception of the buyback program through
March 31, 2012, the Company had repurchased 809,606 shares at an average price of $5.30 per share, leaving $3,184,000 available
under the repurchase plan. The shares repurchased are being held as treasury stock. As of March 31, 2012, there were no plans to
repurchase any additional shares.

Dividends

The Company has not declared any dividends
on its common stock and does not anticipate paying dividends in the foreseeable future. In addition, the terms of the Senior Debt
facility contain restrictions on the ability of the Operating Subsidiaries of the LLC to pay dividends or other distributions,
which will restrict the Company’s ability to pay dividends in the future.

18

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

8. Derivative Financial Instruments

The Company offsets amounts of cash collateral
deposited with counterparties arising from certain derivative instruments executed with the same counterparty against the fair
value amounts reported for those derivative instruments. The effects of derivative instruments on our consolidated financial statements
were as follows as of March 31, 2012 and December 31, 2011, and for the three months ended March 31, 2012 and 2011(in thousands)
(amounts presented exclude any income tax effects and have not been adjusted for the amount attributable to the noncontrolling
interest).

Fair Value of Derivative Instruments in Consolidated Balance
Sheet

Derivative Assets (Liabilities)

Consolidated Balance Sheet Location

March 31, 2012

December 31, 2011

Derivative not designated as hedging instrument:

Commodity contract

Other current assets

$

(128

)

$

(470

)

Cash collateral held or provided with counterparty

Other current assets

240

781

Total

$

112

$

311

Effects of Derivative Instruments on Income

Three Months Ended March 31,

Consolidated Statements of Operations Location

2012

2011

gain (loss)

gain (loss)

Derivative not designated as hedging instrument:

Commodity contract

Net sales

$

(880

)

$

(532

)

Commodity contract

Cost of goods sold

190

—

Net amount recognized in earnings

$

(690

)

$

(532

)

In accordance with these provisions, we have
categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level
fair value hierarchy as set forth below. If the inputs used to measure the financial instruments fall within different levels of
the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded
on the Company’s consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1 — Financial assets
and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that
the Company has the ability to access at the measurement date. We currently do not have any Level 1 financial assets or liabilities.

Level 2 — Financial assets
and liabilities whose values are based on quoted prices in markets where trading occurs infrequently or whose values are based
on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:

·

Quoted prices for identical or similar assets or liabilities in non-active
markets (examples include corporate and municipal bonds which trade infrequently);

·

Inputs other than quoted prices that are observable for substantially
the full term of the asset or liability (examples include interest rate and currency swaps); and

·

Inputs that are derived principally from or corroborated by observable
market data for substantially the full term of the asset or liability (examples include certain securities and derivatives).

See tables above for Level 2 financial assets and
liabilities.

19

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

8. Derivative Financial Instruments – (continued)

Level 3 — Financial assets
and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant
to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant
would use in pricing the asset or liability. We currently do not have any Level 3 financial assets or liabilities.

9. Stock-Based Compensation

The following table summarizes the stock-based
compensation expense incurred by the Company (in thousands):

Three Months Ended March 31,

(In thousands)

2012

2011

Stock options

$

295

$

341

Restricted stock

112

12

Total

$

407

$

353

2007 Equity Incentive Compensation Plan

Immediately prior to the Company’s
initial public offering, the Company adopted the 2007 Equity Incentive Compensation Plan (“2007 Plan”). The 2007 Plan
provides for the grant of options intended to qualify as incentive stock options, non-qualified stock options, stock appreciation
rights or restricted stock awards and any other equity-based or equity-related awards. The 2007 Plan is administered by the Compensation
Committee of the Board of Directors. Subject to adjustment for changes in capitalization, the aggregate number of shares that may
be delivered pursuant to awards under the 2007 Plan was originally 3,000,000; however in March 2011 the Board of Directors
approved an adjustment to such aggregate number of shares to account for the Rights Offering and related increase in the number
of authorized shares of common stock of the Company, as described in Note 7 – Stockholders’ Equity. As a
result of this adjustment, the aggregate number of shares that may be delivered pursuant to awards under the 2007 Plan is 7,100,000. The
term of the 2007 Plan is ten years, expiring in June 2017.

Stock Options — Except
as otherwise directed by the Compensation Committee, the exercise price for options cannot be less than the fair market value of
our common stock on the grant date. Other than the stock options issued to Directors, the options will generally vest and become
exercisable with respect to 30%, 30% and 40% of the shares of our common stock subject to such options on each of the first three
anniversaries of the grant date. Compensation expense related to these options is expensed on a straight line basis over the three
year vesting period. Options issued to Directors generally vest and become exercisable on the first anniversary of the grant date.
All stock options have a five year term from the date of grant. During the three months ended March 31, 2012 and 2011, the Company
did not issue any stock options under the 2007 Plan.

20

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

9. Stock-Based Compensation – (continued)

A summary of stock option activity under
the 2007 Plan as of March 31, 2012, and the changes during the three months ended March 31, 2012 is as follows:

Shares

Weighted Average Exercise Price

Weighted Average Remaining Life (years)

Aggregate Intrinsic Value

Options outstanding, January 1, 2012

1,472,118

$

3.22

Granted

—

—

Exercised

—

—

Forfeited

(14,000

)

5.59

Options outstanding, March 31, 2012

1,458,118

$

3.20

2.6

$

0.00

Options exercisable, March 31, 2012

1,111,055

$

3.28

2.5

$

0.00

A summary of the status of our unvested
stock options as of March 31, 2012, and the changes during the three months ended March 31, 2012 is as follows:

Shares

Weighted Average Grant Date Fair Value

Unvested, January 1, 2012

660,854

$

2.49

Granted

—

—

Vested

(313,791

)

2.52

Forfeited

—

—

Unvested, March 31, 2012

347,063

$

2.47

As of March 31, 2012, there was $726,598
of unrecognized compensation expense related to the unvested portion of stock options outstanding. This expense is expected to
be recognized over one year.

21

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

9. Stock-Based Compensation – (continued)

Restricted Stock — Other
than restricted stock issued to Directors, the restricted stock issued will generally vest in equal increments of 25% on each of
the first four anniversaries of the grant date. Compensation expense related to restricted stock issued is expensed on a straight
line basis over the four year vesting period. Restricted stock issued to Directors generally vests on the first anniversary of
the grant date with compensation expense being expensed on a straight line basis over the one year vesting period. During the three
months ended March 31, 2012 and 2011, the Company granted 1,577,000 and 1,746,000 shares, respectively, under the 2007 Plan to
certain of our employees and our non-employee Directors.

A summary of restricted stock activity under
the 2007 Plan as of March 31, 2012, and the changes during the three months ended March 31, 2012 is as follows:

Shares

Weighted Average Grant Date Fair Value per Award

Aggregate Intrinsic Value

Restricted stock outstanding, January 1, 2012

1,879,000

$

0.75

Granted

1,577,000

0.65

Vested

(519,750

)

0.80

Cancelled or expired

—

—

Restricted stock outstanding, March 31, 2012

2,936,250

$

0.68

$

1,908,563

As of March 31, 2012, there was $1,993,245
of unrecognized compensation expense related to the unvested portion of restricted stock outstanding. This expense is expected
to be recognized over four years.

After considering the stock option and restricted
stock awards issued and outstanding, the Company had 2,086,798 shares of common stock available for future grant under our 2007
Plan at March 31, 2012.

22

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

10. Income Taxes

The Company has not recognized any income
tax provision (benefit) for the three months ended March 31, 2012 and 2011 due to continuing losses from operations.

The U.S. statutory federal income tax rate
is reconciled to the Company’s effective income tax rate as follows (in thousands):

Three Months Ended March 31,

2012

2011

Tax benefit at 35% federal statutory rate

$

3,883

$

3,167

State tax benefit, net of federal benefit

55

45

Noncontrolling interest

(598

)

(493

)

Valuation allowance

(3,051

)

(2,107

)

Other

(289

)

(612

)

$

—

$

—

The effects of temporary differences and
other items that give rise to deferred tax assets and liabilities are presented below (in thousands):

March 31,
2012

December 31,
2011

Deferred tax assets:

Capitalized start up costs

$

3,461

$

3,558

Stock-based compensation

591

665

Net operating loss carryover

71,792

67,671

Other

172

163

Deferred tax assets

76,016

72,057

Valuation allowance

(36,206

)

(33,155

)

Deferred tax liabilities:

Property, plant and equipment

(39,810

)

(38,902

)

Deferred tax liabilities

(39,810

)

(38,902

)

Net deferred tax asset

$

—

$

—

The Company assesses the recoverability
of deferred tax assets and the need for a valuation allowance on an ongoing basis. In making this assessment, management considers
all available positive and negative evidence to determine whether it is more likely than not that some portion or all of the deferred
tax assets will be realized in future periods. This assessment requires significant judgment and estimates involving current and
deferred income taxes, tax attributes relating to the interpretation of various tax laws, historical bases of tax attributes associated
with certain assets and limitations surrounding the realization of deferred tax assets.

As of March 31, 2012, the net operating
loss carryforward was $202 million, which will begin to expire if not used by December 31, 2028. The U.S. federal statute of limitations
remains open for our 2006 and subsequent tax years.

11. Employee Benefit Plans

The LLC sponsors a 401(k) profit sharing
and savings plan for its employees. Employee participation in this plan is voluntary and the LLC matches 50% of eligible employee
contributions, up to an amount equal to 3% of employee compensation, on a biweekly basis. For the three months ended March 31,
2012 and 2011, contributions to the plan by the LLC totaled $83,000 and $68,000, respectively.

23

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

12. Commitments and Contingencies

The LLC, through its subsidiaries, entered
into two operating lease agreements with Cargill. Cargill’s grain handling and storage facilities, located adjacent to the
Wood River and Fairmont plants, are being leased for 20 years, which began in September 2008 for both plants. Minimum annual payments
initially were $800,000 for the Fairmont plant and $1,000,000 for the Wood River plant so long as the associated corn supply agreements
with Cargill remain in effect. Should the Company not maintain its corn supply agreements with Cargill, the minimum annual payments
under each lease increase to $1,200,000 and $1,500,000, respectively. The leases contain escalation clauses which are based on
the percentage change in the Midwest Consumer Price Index. The escalation clauses are considered to be contingent rent and, accordingly,
are not included in minimum lease payments. Rent expense is recognized on a straight line basis over the terms of the leases. Events
of default under the leases include failure to fulfill monetary or non-monetary obligations and insolvency. Effective September
1, 2009, the subsidiaries and Cargill entered into Omnibus Agreements whereby the two operating lease agreements were modified,
for a period of one year, to defer a portion of the monthly lease payments. The deferred lease payments were to be paid back to
Cargill over a two year period beginning September 1, 2010. On September 23, 2010 the subsidiaries and Cargill entered into a letter
agreement (“Letter Agreement”) whereby (i) effective October 2010 the minimum annual payments under the leases were
reduced to $50,000 for the Fairmont plant and $250,000 for the Wood River plant and (ii) repayment of the deferred lease payments
have been deferred for an indefinite period of time. As of March 31, 2012, the deferred lease payments totaled $1.6 million and
are included in other non-current liabilities.

Beginning in the second quarter of 2008,
subsidiaries of the LLC entered into agreements to lease railroad cars over a period of ten years. Pursuant to these lease agreements,
the subsidiaries are currently leasing 785 railroad cars for approximately $6.7 million per year. Monthly rental charges escalate
if modifications of the cars are required by governmental authorities or mileage exceeds 30,000 miles in any calendar year. Rent
expense is recognized on a straight line basis over the terms of the leases. Events of default under the leases include failure
to fulfill monetary or non-monetary obligations and insolvency.

In April 2008, the LLC entered into a five
year lease that began July 1, 2008 for office space for its corporate headquarters. Rent expense is being recognized on a straight
line basis over the term of the lease.

In October 2011, subsidiaries of the LLC
entered into two operating lease agreements to lease corn oil extraction systems, one for each of its plants. Each lease agreement
is for a period of two years and commenced in April 2012 when funding was completed. Pursuant to these lease agreements, each subsidiary
is paying approximately $4.3 million per year for the corn oil extraction systems. Rent expense is recognized on a straight line
basis over the terms of the leases. Events of default under the leases include failure to fulfill monetary or non-monetary obligations
and insolvency.

Rent expense recorded for the three months
ended March 31, 2012 and 2011 totaled $2,822,000 and $1,914,000, respectively.

Pursuant to long-term agreements, Cargill
is the exclusive supplier of corn to the Wood River and Fairmont plants for twenty years commencing September 2008. The price of
corn purchased under these agreements is based on a formula including cost plus an origination fee of $0.045 per bushel. The minimum
annual origination fee payable to Cargill per plant under the agreements is $1.2 million. The agreements contain events of default
that include failure to pay, willful misconduct, purchase of corn from another supplier, insolvency or the termination of the associated
grain facility lease. Effective September 1, 2009, the subsidiaries and Cargill entered into Omnibus Agreements whereby the two
corn supply agreements were modified, for a period of one year, extending payment terms for our corn purchases which were to revert
back to the original terms on September 1, 2010. On September 23, 2010 the subsidiaries and Cargill entered into a Letter Agreement
whereby the extended payment terms for our corn purchases will remain in effect for the remainder of the two corn supply agreements.

24

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

12. Commitments and Contingencies
– (continued)

At March 31, 2012, the LLC, through its
subsidiaries, had contracted to purchase 4,055,000 bushels of corn to be delivered between April 2012 and March 2013 at our Fairmont
location, and 5,363,000 bushels of corn to be delivered between April 2012 and October 2013 at our Wood River location. These purchase
commitments represent 10% and 8% of the projected corn requirements during those periods for Fairmont and Wood River, respectively.
The purchase price of the corn will be determined at the time of delivery.

Cargill has agreed to purchase all ethanol
produced at the Wood River and Fairmont plants through September 2016. Under the terms of the ethanol marketing agreements, the
Wood River and Fairmont plants generally participate in a marketing pool in which all parties receive the same net price.
That price is generally the average delivered price per gallon received by the marketing pool less average transportation and storage
charges and less a commission. In certain circumstances, the plants may elect not to participate in the marketing pool. Minimum
annual commissions are payable to Cargill equal to 1% of Cargill’s average selling price for 82.5 million gallons of ethanol
from each plant. The ethanol marketing agreements contain events of default that include failure to pay, willful misconduct and
insolvency. Effective September 1, 2009, the subsidiaries and Cargill entered into Omnibus Agreements whereby the two ethanol marketing
agreements were modified, for a period of one year, to defer a portion of the monthly ethanol commission payments. The deferred
commission payments were to be paid to Cargill over a two year period beginning September 1, 2010. On September 23, 2010 the subsidiaries
and Cargill entered into a Letter Agreement whereby (i) effective September 24, 2010 the ethanol commissions were reduced and (ii)
repayment of the deferred commission payments have been deferred for an indefinite period of time with any repayment at the discretion
of the subsidiaries of the LLC. As of March 31, 2012, the deferred ethanol commissions totaled $1.2 million and are included in
other non-current liabilities.

The Company is not currently a party to
any material legal, administrative or regulatory proceedings that have arisen in the ordinary course of business or otherwise that
would result in loss contingencies.

25

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

13. Noncontrolling Interest

Noncontrolling interest consists of equity
issued to members of the LLC upon the Company’s initial public offering in June 2007. As provided in the LLC agreement, the
exchange ratio of the various existing classes of equity of the LLC for the single class of equity at the time of the Company’s
initial public offering was based on the Company’s initial public offering price of $10.50 per share and the resulting implied
valuation of the Company. The exchange resulted in the issuance of 17,957,896 LLC membership units and Class B common shares. Each
LLC membership unit combined with a share of Class B common stock is exchangeable at the holder’s option into one share of
Company common stock. The LLC may make distributions to members as determined by the Company.

The following table summarizes the exchange
activity since the Company’s initial public offering:

LLC Membership Units and Class B common shares outstanding at initial public offering, June 2007

17,957,896

LLC Membership Units and Class B common shares exchanged in 2007

(561,210

)

LLC Membership Units and Class B common shares exchanged in 2008

(7,314,438

)

LLC Membership Units and Class B common shares exchanged in 2009

(2,633,663

)

LLC Membership Units and Class B common shares exchanged in 2010

(336,600

)

LLC Membership Units and Class B common shares issued in connection with the LLC concurrent private placement in February 2011

18,369,262

LLC Membership Units and Class B common shares exchanged in 2011

(6,858,303

)

LLC Membership Units and Class B common shares exchanged in the three months ended March 31, 2012

—

Remaining LLC Membership Units and Class B common shares at March 31, 2012

18,622,944

At the time of its initial public offering,
the Company owned 28.9% of the LLC membership units of the LLC. At March 31, 2012, the Company owned 85.0% of the LLC membership
units. The noncontrolling interest will continue to be reported until all Class B common shares and LLC membership units have been
exchanged for the Company’s common stock.

The table below shows the effects of the
changes in BioFuel Energy Corp.’s ownership interest in the LLC on the equity attributable to BioFuel Energy Corp.’s
common stockholders for the three months ended March 31, 2012 and 2011 (in thousands):

Net Loss Attributable to BioFuel Energy
Corp.’s Common Stockholders and

Transfers from the Noncontrolling Interest

Three Months Ended March 31,

2012

2011

Net loss attributable to BioFuel Energy Corp.

$

(9,408

)

$

(7,662

)

Increase in BioFuel Energy Corp. stockholders equity from issuance of common shares in exchange for Class B common shares and units of BioFuel Energy, LLC

—

2,280

Change in equity from net loss attributable to BioFuel Energy Corp. and transfers from noncontrolling interest

$

(9,408

)

$

(5,382

)

26

BioFuel Energy Corp.

Notes to Consolidated Financial Statements

(Unaudited)

13. Noncontrolling Interest – (continued)

Tax Benefit Sharing Agreement

Membership units in the LLC combined with
the related Class B common shares held by the historical equity investors may be exchanged in the future for shares of our common
stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications.
The LLC will make an election under Section 754 of the IRS Code effective for each taxable year in which an exchange of membership
units and Class B shares for common shares occurs, which may result in an adjustment to the tax basis of the assets owned by the
LLC at the time of the exchange. Increases in tax basis, if any, would reduce the amount of tax that the Company would otherwise
be required to pay in the future, although the IRS may challenge all or part of the tax basis increases, and a court could sustain
such a challenge. The Company has entered into tax benefit sharing agreements with its historical LLC investors that will provide
for a sharing of these tax benefits, if any, between the Company and the historical LLC equity investors. Under these agreements,
the Company will make a payment to an exchanging LLC member of 85% of the amount of cash savings, if any, in U.S. federal, state
and local income taxes the Company actually realizes as a result of this increase in tax basis. The Company and its common stockholders
will benefit from the remaining 15% of cash savings, if any, in income taxes realized. For purposes of the tax benefit sharing
agreement, cash savings in income tax will be computed by comparing the Company’s actual income tax liability to the amount
of such taxes the Company would have been required to pay had there been no increase in the tax basis in the assets of the LLC
as a result of the exchanges. The term of the tax benefit sharing agreement commenced on the Company’s initial public offering
in June 2007 and will continue until all such tax benefits have been utilized or expired, unless a change of control occurs and
the Company exercises its resulting right to terminate the tax benefit sharing agreement for an amount based on agreed payments
remaining to be made under the agreement.

True Up Agreement

At the time of formation of the LLC, the
founders agreed with certain of our principal stockholders as to the relative ownership interests in the Company of our management
members and affiliates of Greenlight Capital, Inc. (“Greenlight”) and Third Point LLC (“Third Point”).
Certain management members and affiliates of Greenlight and Third Point agreed to exchange LLC membership interests, shares of
common stock or cash at a future date, referred to as the “true-up date”, depending on the Company’s performance.
This provision functions by providing management with additional value if the Company’s value improves and by reducing management’s
interest in the Company if its value decreases, subject to a predetermined rate of return accruing to Greenlight and Third Point.
In particular, if the value of the Company increases from the time of the initial public offering to the “true-up date”,
the management members will be entitled to receive LLC membership units, shares of common stock or cash from the affiliates of
Greenlight and Third Point. On the other hand, if the value of the Company decreases from the time of the initial public offering
to the “true-up date” or if a predetermined rate of return is not met, the affiliates of Greenlight and Third Point
will be entitled to receive LLC membership units or shares of common stock from the management members.

The “true-up date” will be
the earlier of (1) the date on which the Greenlight and Third Point affiliates sell a number of shares of our common stock equal
to or greater than the number of shares of common stock or Class B common stock received by them at the time of our initial public
offering in respect of their original investment in the LLC, or (2) five years from the date of the initial public offering which
is June 2012. On the “true-up date”, the LLC’s value will be determined, based on the prices at which the Greenlight
and Third Point affiliates sold shares of our common stock prior to that date, with any remaining shares (or LLC membership units
exchangeable for shares) held by them deemed to have been sold at the then-current trading price. If the number of LLC membership
units held by the management members at the time of the offering is greater than the number of LLC membership units the management
members would have been entitled to in connection with the “true-up” valuation, the management members will be obligated
to deliver to the Greenlight and Third Point affiliates a portion of their LLC membership units or an equivalent number of shares
of common stock. Conversely, if the number of LLC membership units the management members held at the time of the offering is less
than the number of LLC membership units the management members would have been entitled to in connection with the “true-up”
valuation, the Greenlight and Third Point affiliates will be obligated to deliver, at their option, to the management members a
portion of their LLC membership interests or an equivalent amount of cash or shares of common stock. In no event will any management
member be required to deliver more than 50% of the membership units in the LLC, or an equivalent number of shares of common stock,
held on the date of the initial public offering, provided that Mr. Thomas J. Edelman, our former chairman, may be required to deliver
up to 100% of his LLC membership units, or an equivalent amount of cash or number of shares of common stock. No new shares will
be issued as a result of the “true-up”. As a result there will be no impact on our public stockholders, but rather
a redistribution of shares among certain members of our management group and our two largest investors, Greenlight and Third Point.
This agreement was considered a modification of the awards granted to the participating management members; however, no incremental
fair value was created as a result of the modification.

27

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion
in conjunction with the unaudited consolidated financial statements and the accompanying notes included in this Quarterly Report
on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Specifically, forward-looking
statements may be preceded by, followed by or may include such words as “estimate”, “plan”, “project”,
“forecast”, “intend”, “expect”, “is to be”, “anticipate”, “goal”,
“believe”, “seek”, “target” or other similar expressions. You are cautioned not to place undue
reliance on any forward-looking statements, which speak only as of the date of this Form 10-Q, or in the case of a document incorporated
by reference, as of the date of that document. Except as required by law, we undertake no obligation to publicly update or release
any revisions to these forward-looking statements to reflect any events or circumstances after the date of this Form 10-Q or to
reflect the occurrence of unanticipated events. Our actual results may differ materially from those discussed in or implied by
any of the forward-looking statements as a result of various factors, including but not limited to those listed elsewhere in this
Form 10-Q and those listed in our Annual Report on Form 10-K for the year ended December 31, 2011 or in any other documents we
have filed with the Securities and Exchange Commission.

Overview

BioFuel Energy Corp. produces and sells
ethanol, distillers grain and corn oil through its two ethanol production facilities located in Wood River, Nebraska and Fairmont,
Minnesota. Each of these plants has an undenatured nameplate production capacity of approximately 110 million gallons per year
(“Mmgy”). We work closely with Cargill, one of the world’s leading agribusiness companies, with whom we have
an extensive commercial relationship. The two plant locations were selected primarily based on access to corn supplies, the availability
of rail transportation and natural gas and Cargill’s competitive position in the area. At each location, Cargill has a strong
local presence and owns adjacent grain storage and handling facilities, which we lease from them. Cargill provides corn procurement
services, markets the ethanol we produce and provides transportation logistics for our two plants under long-term contracts.

We are a holding company with no operations
of our own, and are the sole managing member of BioFuel Energy, LLC (the “LLC”), which is itself a holding company
and indirectly owns all of our operating assets. As the sole managing member of the LLC, BioFuel Energy Corp. operates and controls
all of the business and affairs of the LLC and its subsidiaries. The Company’s ethanol plants are owned and operated by the
Operating Subsidiaries of the LLC.

In February 2011, we completed a Rights
Offering to the Company’s common stockholders of rights to purchase 63,773,603 depositary shares representing fractional
interests in shares of Series A Non-Voting Convertible Preferred Stock (“Preferred Stock”). Concurrent with the Rights
Offering, the LLC conducted a private placement of LLC interests that was structured to provide the holders of the membership interests
in the LLC (other than the Company) with a private placement that was economically equivalent to the Rights Offering. On February
2, 2011, the Company’s stockholders approved an increase in the number of authorized shares of common stock of the Company,
which resulted in the automatic conversion of shares of the Preferred Stock into shares of the Company’s common stock such
that subscribers in the Rights Offering were issued one share of common stock in lieu of each depositary share subscribed for.
These transactions were completed, and 63,773,603 shares of common stock and 18,369,262 LLC interests (along with an equivalent
number of shares of Class B common stock) were issued, on February 4, 2011, and the aggregate gross proceeds of the Rights Offering
and the concurrent private placement were $46.0 million. In contemplation of the Rights Offering, on September 23, 2010 we entered
into a Letter Agreement with Cargill pursuant to which we issued 6,597,790 shares of common stock to Cargill on February 15, 2011,
in exchange for the extinguishment of certain indebtedness. See “— Liquidity and capital resources — Rights
Offering and LLC Concurrent Private Placement”.

In June 2011, the Company terminated its
long-term Distillers Grains Marketing Agreements with Cargill. The Company has entered into separate marketing agreements
with independent third party marketers for its dry and wet distillers grains. These agreements are for a term of one
year, with options to renew for subsequent years, and contain other customary commercial terms.

During 2011, the Company began installing
corn oil extraction systems at each of its ethanol plants so that it could begin producing non-food grade corn oil as an additional
co-product. These systems were installed using certain patented technology we have licensed from Greenshift Corporation for which
we pay a royalty. On October 28, 2011, the Company’s Operating Subsidiaries began receiving funding under an operating lease
each Operating Subsidiary entered into with Farnam Street Financial, Inc. These operating leases provided the funding
to pay for most of the costs of installing the corn oil extraction systems at each Operating Subsidiary. The installation in Wood
River was completed in December 2011 and the installation in Fairmont was completed in January 2012. Both Operating Subsidiaries
began generating revenues from corn oil sales early in the first quarter of 2012.

28

Liquidity Considerations

Our operations and cash flows are subject to wide and unpredictable
fluctuations primarily due to changes in commodity prices, specifically, the price of our main commodity input, corn, relative
to the price of our main commodity product, ethanol, which is known in the industry as the “crush spread”. The prices
of these commodities are volatile and beyond our control. As a result of the volatility of the prices for these and other items,
our results fluctuate substantially and in ways that are largely beyond our control. As shown in the accompanying consolidated
financial statements, the Company incurred a net loss of $11.1 million for the three months ended March 31, 2012 due to narrow
commodity margins. Narrow commodity margins present a significant risk to our cash flows and liquidity. We have had, and continue
to have, limited liquidity, with $11.7 million of cash and cash equivalents as of March 31, 2012. In addition, we have relied upon
extensions of payment terms by Cargill as an additional source of liquidity and working capital. See “— Liquidity and
capital resources”.

Should current commodity margins continue
for an extended period of time, we may not generate sufficient cash flow from operations to both service our debt and operate our
plants. We are required to make, under the terms of our Senior Debt Facility, quarterly principal payments in a minimum amount
of $3,150,000, plus accrued interest. We cannot predict when or if crush spreads will fluctuate again or if the current commodity
margins will improve or worsen. If crush spreads were to remain at current levels for an extended period of time, we may expend
all of our sources of liquidity, in which event we would not be able to pay principal and interest on our debt. Any
inability to pay principal and interest on our debt would lead to an event of default under our Senior Debt Facility, which, in
the absence of forbearance, debt service abeyance or other accommodations from our lenders, could require us to seek relief through
a filing under the U.S. Bankruptcy Code. We expect fluctuations in the crush spread to continue.

Since we commenced operations, we have
from time to time entered into derivative financial instruments such as futures contracts, swaps and options contracts with the
objective of limiting our exposure to changes in commodities prices. In the past, we have only been able to conduct such hedging
activities on a limited basis due to our lack of financial resources and, while we are currently engaged in some hedging activities,
we may not have the financial resources to increase or conduct hedging activities in the future.

Basis for Consolidation

At March 31, 2012, the Company owned 85.0%
of the LLC membership units with the remaining 15.0% owned by certain individuals and by certain investment funds affiliated with
some of the original equity investors of the LLC. As a result, the Company consolidates the results of the LLC. The amount
of income or loss allocable to the 15.0% holders is reported as noncontrolling interest in our consolidated statements of operations. The
Class B common shares of the Company are held by the same individuals and investment funds who held 18,622,944 membership units
in the LLC as of March 31, 2012 that, together with the corresponding Class B shares, can be exchanged for newly issued shares
of common stock of the Company on a one-for-one basis. The proportionate value of the LLC membership units held by individuals
or entities other than the Company are recorded as noncontrolling interest on the consolidated balance sheets.

Revenues

Our primary source of revenue is the sale
of ethanol. The selling prices we realize for our ethanol are largely determined by the market supply and demand for ethanol, which,
in turn, is influenced by industry and other factors, including government policy and regulations, over which we have little control.
Ethanol prices are extremely volatile. Ethanol revenues are recorded net of transportation and storage charges, and
net of marketing commissions we pay to Cargill.

We also receive revenue from the sale of
distillers grain, which is a residual co-product of the processed corn used in the production of ethanol and is sold as animal
feed. The selling prices we realize for our distillers grain are largely determined by the market supply and demand, primarily
from livestock operators and marketing companies in the U.S. and internationally. Distillers grain is sold by the ton and, based
upon the amount of moisture retained in the product, can either be sold “wet” or “dry”.

The corn oil produced at our plants is
used primarily as a feedstock for the production of biodiesel and as an animal feed ingredient. The corn oil produced in Wood River
is being sold to the same independent third party marketer that purchases our dried distillers grain from that facility. Most of
the corn oil produced in Fairmont is being sold to a biodiesel producer under an off-take agreement.

29

Cost of goods sold and gross profit (loss)

Our gross profit (loss) is derived from
our revenues less our cost of goods sold. Our cost of goods sold is affected primarily by the cost of corn and natural gas. The
prices of both corn and natural gas are volatile and can vary as a result of a wide variety of factors, including weather, market
demand, regulation and general economic conditions, all of which are outside of our control.

Corn is our most significant raw material
cost. Rising corn prices may result in lower profit margins because changes in ethanol prices are not necessarily correlated with
changes in corn prices and therefore producers are not always able to pass along increased corn costs to customers. The price and
availability of corn is influenced by weather conditions and other factors affecting crop yields, farmer planting decisions and
general economic, market and regulatory factors. These factors include government policies and subsidies with respect to agriculture
and international trade, and global and local demand and supply for corn and for other agricultural commodities for which it may
be substituted, such as soybeans. Historically, the cash price we pay for corn, relative to the spot price of corn, tends to rise
during the spring planting season in April and May as the local basis (i.e., discount) contracts, and tends to decrease relative
to the spot price during the fall harvest in October and November as the local basis expands.

We also purchase natural gas to power steam
generation in our ethanol production process and as fuel for our dryers to dry our distillers grain. Natural gas represents our
second largest operating cost after corn, and natural gas prices are extremely volatile. Historically, the spot price of natural
gas tends to be highest during the heating and cooling seasons and tends to decrease during the spring and fall.

Corn procurement fees paid to Cargill are
included in our cost of goods sold. Other cost of goods sold primarily consists of our cost of chemicals and enzymes, electricity,
depreciation, manufacturing overhead and rail car lease expense.

General and administrative expenses

General and administrative expenses consist
of salaries and benefits paid to our management and administrative employees, expenses relating to third party services, travel,
office rent, marketing and other expenses, including expenses associated with being a public company, such as fees paid to our
independent auditors associated with our annual audit and quarterly reviews, directors’ fees, and listing and transfer agent
fees.

Results of operations

The following discussion summarizes the significant
factors affecting the consolidated operating results of the Company for the three months ended March 31, 2012 and March 31, 2011.
This discussion should be read in conjunction with the unaudited consolidated financial statements and notes to the unaudited consolidated
financial statements contained in this Form 10-Q.

The following table sets forth net sales,
expenses and net loss, as well as the percentage relationship to net sales of certain items in our consolidated statements of operations:

Three Months Ended March 31,

2012

2011

(dollars in thousands)

Net sales

$

139,413

100.0

%

$

158,005

100.0

%

Cost of goods sold

145,933

104.7

160,159

101.4

Gross loss

(6,520

)

(4.7

)

(2,154

)

(1.4

)

General and administrative expenses

2,735

2.0

2,667

1.7

Operating loss

(9,255

)

(6.7

)

(4,821

)

(3.1

)

Interest expense

(1,838

)

(1.3

)

(4,228

)

(2.6

)

Net loss

(11,093

)

(8.0

)

(9,049

)

(5.7

)

Less: Net loss attributable to the noncontrolling interest

1,685

1.2

1,387

0.9

Net loss attributable to BioFuel Energy Corp. common stockholders

$

(9,408

)

(6.8

)%

$

(7,662

)

(4.8

)%

30

The following table sets forth key operational
data for the three months ended March 31, 2012 and March 31, 2011 that we believe are important indicators of our results of operations:

Three Months Ended March 31,

2012

2011

Ethanol sold (gallons, in thousands)

51,971

56,658

Dry distillers grains sold (tons, in thousands)

54.0

95.8

Wet distillers grains sold (tons, in thousands)

251.4

148.7

Corn oil sold (pounds, in thousands)

6,842

—

Corn Ground (bushels, in thousands)

18,856

20,340

Three Months Ended March 31, 2012 Compared to the Three
Months Ended March 31, 2011

Net Sales: Net Sales were
$139.4 million for the three months ended March 31, 2012 compared to $158.0 million for the three months ended March 31, 2011,
a decrease of $18.6 million or 11.8%. This decrease was primarily attributable to a decrease in ethanol revenues of $23.8 million
which was offset by an increase in coproduct revenues of $5.2 million. The decrease in ethanol revenue was attributable to both
a decrease in the per unit price we received for ethanol, reflecting decreases in market prices compared to the year ago period,
and a decrease in the quantity of ethanol produced and sold. Lower ethanol production as compared to the prior year resulted primarily
from reduced grind rates due to a tightened corn supply in the first three months of 2012. The increase in coproduct revenue was
primarily attributable to the commencement of corn oil extraction at both of our plants in the first quarter of 2012, in addition
to receiving a higher per unit price for our distillers grains for the three months ended March 31, 2012 as compared to the year
ago period.

Cost of goods sold: The
following table sets forth the components of cost of goods sold for the three months ended March 31, 2012 and March 31, 2011:

Three Months Ended March 31,

2012

2011

Amount

Per Gallon of Ethanol

Amount

Per Gallon of Ethanol

(amounts in thousands, except per gallon amounts)

Corn

$

118,837

$

2.29

$

129,364

$

2.28

Natural gas

4,654

$

0.09

7,690

$

0.14

Denaturant

1,850

$

0.04

2,204

$

0.04

Electricity

3,292

$

0.06

3,207

$

0.06

Chemicals and enzymes

3,572

$

0.07

4,001

$

0.07

General operating expenses

7,198

$

0.14

7,216

$

0.13

Depreciation

6,530

$

0.13

6,477

$

0.11

Cost of goods sold

$

145,933

$

160,159

Cost of goods sold was $145.9 million for
the three months ended March 31, 2012 compared to $160.2 million for the three months ended March 31, 2011, a decrease of $14.3
million or 8.9%. The decrease was primarily attributable to a $10.5 million decrease in the cost of corn and a $3.0 million decrease
in natural gas expense. The decrease in corn cost was primarily attributable to a decrease in the amount of corn ground as compared
to the year ago period. The decrease in natural gas expense resulted from both a decrease in the amount of production of dry distillers
grain as compared to the year ago period, as we produced more wet distillers grain, in addition to a decrease in the unit price
paid for natural gas as compared to the year ago period.

General and administrative expenses:
General and administrative expenses did not change materially from the three months ended March 31, 2012, compared
to the three months ended March 31, 2011.

Interest expense: Interest
expense was $1.8 million for the three months ended March 31, 2012, compared to $4.2 million for the three months ended March 31,
2011, a decrease of $2.4 million or 57.1%. The decrease in interest expense was primarily attributable to the Company’s average
outstanding debt balance being lower during the three months ended March 31, 2012 as compared to the year ago period, resulting
primarily from the Company paying off its subordinated debt and bridge loan in the first quarter of 2011, in addition to the Company
having expensed $1.5 million of remaining unamortized debt issuance costs related to the subordinated debt and bridge loan when
those debt facilities were paid off in the year ago period.

31

Liquidity and capital resources

Our cash flows from operating, investing
and financing activities during the three months ended March 31, 2012 and March 31, 2011 are summarized below (in thousands):

Three Months Ended March 31,

2012

2011

Cash provided by (used in):

Operating activities

$

330

$

3,542

Investing activities

(581

)

(188

)

Financing activities

(3,201

)

(3,368

)

Net decrease in cash and equivalents

$

(3,452

)

$

(14

)

Cash provided by operating activities.
Net cash provided by operating activities was $0.3 million for the three months ended March 31, 2012, compared to $3.5
million for the three months ended March 31, 2011. For the three months ended March 31, 2012, the amount was primarily
comprised of a net loss of $11.1 million which was offset by working capital sources of $3.9 million and non-cash charges of $7.5
million, which were primarily depreciation and amortization. Working capital sources primarily related to a decrease in inventories
and an increase in accounts payable, which were partially offset by an increase in accounts receivable. For the three months ended
March 31, 2011, the amount was primarily comprised of a net loss of $9.0 million which was offset by working capital sources of
$3.5 million and non-cash charges of $9.0 million, which were primarily depreciation and amortization.

Cash used in investing activities.
Net cash used in investing activities was $0.6 million for the three months ended March 31, 2012, compared to $0.2
million for the three months ended March 31, 2011. The net cash used in investing activities during both periods was for capital
expenditures related to various plant improvement projects.

Cash used in financing activities.
Net cash used in financing activities was $3.2 million for the three months ended March 31, 2012, compared to $3.4
million for the three months ended March 31, 2011. For the three months ended March 31, 2012, the amount was primarily comprised
of our $3.2 million principal payment under our Senior Debt Facility. For the three months ended March 31, 2011, the amount was
primarily comprised of $46.0 million of proceeds related to our Rights Offering and LLC concurrent private placement, offset by
a $3.2 million principal payment under our Senior Debt Facility, a $21.5 million payment to pay off our subordinated debt, a $20.0
million payment to pay off our bridge loan, $3.0 million in payments of notes payable and capital leases, and $1.7 million in payments
for debt and equity issuance costs.

Our principal source of liquidity at March
31, 2012 consisted of cash generated from operations and cash and cash equivalents of $11.7 million. We have also relied upon extensions
of payment terms by Cargill as an additional source of liquidity and working capital. As of March 31, 2012, we owed Cargill $6.5
million for accounts payable related to corn purchases. Pursuant to an arrangement with Cargill, we have been permitted to extend
corn payment terms beyond the $10.0 million contractual limit so long as the amounts Cargill owes us for ethanol exceed the accounts
payable balance by an amount that is satisfactory to Cargill. This arrangement may be terminated by Cargill at any time on little
or no notice, in which case we would need to use cash on hand or other sources of liquidity, if available, to fund our operations.

Our principal liquidity needs are expected
to be funding our plant operations, capital expenditures, debt service requirements and general corporate purposes. As noted elsewhere
in this report, the Company reported a net loss of $11.1 million for the three months ended March 31, 2012, due to narrow commodity
margins. We have had, and continue to have, limited liquidity. We cannot predict when or if crush spreads will fluctuate again
or if the current commodity margins will improve or worsen. If crush spreads were to remain at current levels for an extended period
of time, we may expend all of our sources of liquidity, in which event we would not be able to pay principal or interest on our
debt. Any inability to pay principal or interest on our debt would lead to an event of default under our Senior Debt
Facility and, in the absence of forbearance, debt service abeyance or other accommodations from our lenders could require us to
seek relief through a filing under the U.S. Bankruptcy Code.

32

Senior Debt Facility

In September 2006, the Operating Subsidiaries
entered into the Senior Debt Facility to finance the construction of and provide working capital to operate our ethanol plants.
Neither the Company nor the LLC is a borrower under the Senior Debt Facility, although the equity interests and assets of our subsidiaries
are pledged as collateral to secure the debt under the facility. Principal payments under the Senior Debt Facility are payable
quarterly at a minimum amount of $3,150,000, with additional pre-payments to be made out of available cash flow. As of March 31,
2012, there remained $173.6 million in aggregate principal amount outstanding under the Senior Debt Facility. These term loans
mature in September 2014.

Interest rates on the Senior Debt Facility
are, at management’s option, set at: i) a base rate, which is the higher of the federal funds rate plus 0.5% or the administrative
agent’s prime rate, in each case plus a margin of 2.0%; or ii) at LIBOR plus 3.0%. Interest on base rate loans is payable
quarterly and, depending on the LIBOR rate elected, as frequently as monthly on LIBOR loans, but no less frequently than quarterly.
The weighted average interest rate in effect on the borrowings at March 31, 2012 was 3.2%.

The Senior Debt Facility is secured by
a first priority lien on all right, title and interest in and to the Wood River and Fairmont plants and any accounts receivable
or property associated with those plants and a pledge of all of our equity interests in the Operating Subsidiaries. The Operating
Subsidiaries have established collateral deposit accounts maintained by an agent of the banks, into which our revenues are deposited,
subject to security interests to secure any outstanding obligations under the Senior Debt Facility. These funds are then allocated
into various sweep accounts held by the collateral agent, including accounts that provide funds for the operating expenses of the
Operating Subsidiaries. The collateral accounts have various provisions, including historical and prospective debt service coverage
ratios and debt service reserve requirements, which determine whether there is, and the amount of, cash available to the LLC from
the collateral accounts each month. The terms of the Senior Debt Facility also include covenants that impose certain limitations
on, among other things, the ability of the Operating Subsidiaries to incur additional debt, grant liens or encumbrances, declare
or pay dividends or distributions, conduct asset sales or other dispositions, merge or consolidate, and conduct transactions with
affiliates. The terms of the Senior Debt Facility also include customary events of default including failure to meet payment obligations,
failure to pay financial obligations, failure of the Operating Subsidiaries of the LLC to remain solvent and failure to obtain
or maintain required governmental approvals. Under the terms of separate management services agreements between our Operating Subsidiaries
and the LLC, the Operating Subsidiaries pay a monthly management fee of $869,000 to the LLC to cover salaries, rent, and other
operating expenses of the LLC, which payments are unaffected by the terms of the Senior Debt Facility or the collateral accounts.

Debt issuance fees and expenses of $7.9
million ($2.4 million, net of accumulated amortization) have been incurred in connection with the Senior Debt Facility through
March 31, 2012. These costs have been deferred and are being amortized and expensed over the term of the Senior Debt Facility.

Capital lease

The LLC, through its subsidiary that constructed
the Fairmont plant, has entered into an agreement with the local utility pursuant to which the utility has built and owns and operates
a substation and distribution facility in order to supply electricity to the plant. The LLC is paying a fixed facilities charge
based on the cost of the substation and distribution facility of $34,000 per month, over the 30-year term of the agreement. This
fixed facilities charge is being accounted for as a capital lease in the accompanying financial statements. The agreement also
includes a $25,000 monthly minimum energy charge that also began in the first quarter of 2008.

Notes payable

Notes payable relate to certain financing
agreements in place at each of our sites. The Operating Subsidiaries entered into financing agreements in the first quarter of
2008 for the purchase of certain rolling stock equipment to be used at the facilities for $748,000. The notes have fixed interest
rates (weighted average rate of approximately 5.6%) and require 48 monthly payments of principal and interest, maturing in the
first and second quarter of 2012. In addition, the subsidiary of the LLC that constructed the Wood River facility had entered into
a note payable for $2,220,000 with a fixed interest rate of 11.8% for the purchase of our natural gas pipeline. The note required
36 monthly payments of principal and interest and matured in the first quarter of 2011. In addition, the subsidiary of the LLC
that constructed the Wood River facility has entered into a note payable for $419,000 with the City of Wood River for special assessments
related to street, water and sanitary improvements at our Wood River facility. This note requires ten annual payments of $58,000,
including interest at 6.5% per annum, and matures in 2018.

33

Tax increment financing

In February 2007, the subsidiary of the
LLC that constructed the Wood River plant received $6.0 million from the proceeds of a tax increment revenue note issued by the
City of Wood River, Nebraska. The proceeds funded improvements to property owned by the subsidiary. The City of Wood River will
pay the principal and interest of the note from the incremental increase in the property taxes related to the improvements made
to the property. The proceeds have been recorded as a liability which is reduced as the subsidiary of the LLC remits property taxes
to the City of Wood River, which began in 2008 and will continue through 2021. The LLC has guaranteed the principal and interest
of the tax increment revenue note if, for any reason, the City of Wood River fails to make the required payments to the holder
of the note or the subsidiary of the LLC fails to make the required payments to the City of Wood River.

Rights Offering and LLC Concurrent Private Placement

On September 24, 2010, the Company entered
into a Rights Offering Letter Agreement with certain affiliates of Greenlight Capital, Inc. and certain affiliates of Third Point
LLC pursuant to which the Company conducted a rights offering to its stockholders (the “Rights Offering”). The Rights
Offering entailed a distribution to our common stockholders of rights to purchase depositary shares representing fractional interests
in shares of Series A Non-Voting Convertible Preferred Stock (the “Preferred Stock”). Concurrent with the Rights Offering,
the LLC conducted a private placement of LLC interests that was structured to provide the holders of the membership interests
in the LLC (other than the Company) with a private placement that was economically equivalent to the Rights Offering. On February
2, 2011, the Company’s stockholders approved an increase in the number of authorized shares of common stock of the Company,
which resulted in the automatic conversion of shares of the Preferred Stock into shares of the Company’s common stock such
that subscribers in the Rights Offering were issued one share of common stock in lieu of each depositary share subscribed for.
These transactions were completed and 63,773,603 shares of common stock, at a price of $0.56 per share, and 18,369,262 LLC membership
interests, at a price of $0.56 per unit (along with an equivalent number of shares of Class B common stock), were issued on February
4, 2011. The aggregate gross proceeds of the Rights Offering and the concurrent private placement were $46.0 million. The proceeds
of the transaction were used to (i) repay in full $20.3 million owed under a bridge loan previously provided by certain affiliates
of Greenlight Capital, Inc. and certain affiliates of Third Point LLC, (ii) repay in full $21.5 million owed under our then outstanding
subordinated debt, (iii) repay $2.8 million of debt owed to Cargill and (iv) pay certain fees and expenses incurred in connection
with the Rights Offering and the LLC’s concurrent private placement.

In contemplation of the Rights Offering,
on September 23, 2010, we entered into a Letter Agreement with Cargill pursuant to which we agreed to (i) use a portion of the
proceeds from the Rights Offering (to the extent available) to repay a portion of certain indebtedness owed to Cargill, upon which
Cargill would forgive a like amount of principal and any accrued interest on such forgiven principal according to its original
terms and (ii) upon successful completion of the Rights Offering, issue a number of depositary shares in exchange for forgiveness
by Cargill of the remaining principal balance of the debt. On February 15, 2011, the Company issued 6,597,790 shares of common
stock to Cargill in exchange for the extinguishment of the remaining amount owed to Cargill. An additional $2.0 million that was
carried on our balance sheet at December 31, 2010 due to troubled debt restructuring accounting was also extinguished. This amount,
in addition to the $2.8 million forgiven, was accounted for as a capital contribution to additional paid-in capital because the
Company and Cargill were considered related parties.

Off-balance sheet arrangements

Except for our operating leases, we do
not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our
financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources.

Summary of critical accounting policies and significant estimates

The consolidated financial statements of
BioFuel Energy Corp. included in this Form 10-Q have been prepared in conformity with accounting principles generally accepted
in the United States. Note 2 to these consolidated financial statements contains a summary of our significant accounting policies,
certain of which require the use of estimates and assumptions. Accounting estimates are an integral part of the preparation of
financial statements and are based on judgments by management using its knowledge and experience about the past and current events
and assumptions regarding future events, all of which we consider to be reasonable. These judgments and estimates reflect the effects
of matters that are inherently uncertain and that affect the carrying value of our assets and liabilities, the disclosure of contingent
liabilities and reported amounts of expenses during the reporting period.

34

The accounting estimates and assumptions
discussed in this section are those that we believe involve significant judgments and the most uncertainty. Changes in these estimates
or assumptions could materially affect our financial position and results of operations and are therefore important to an understanding
of our consolidated financial statements.

Revenues

The Company sells its ethanol, distillers
grain and corn oil products under the terms of marketing agreements. Revenue is recognized when risk of loss and title transfers
upon shipment of ethanol, distillers grain or corn oil. In accordance with our marketing agreements, the Company records its revenues
based on the amounts payable to us at the time of our sales of ethanol, distillers grain or corn oil. For our ethanol that is sold
within the United States, the amount payable is equal to the average delivered price per gallon received by the marketing pool
from Cargill’s customers, less average transportation and storage charges incurred by Cargill, and less a commission. We
also sell a portion of our ethanol production to Cargill for export, which sales are shipped undenatured and are excluded from
the marketing pool. For exported ethanol sales, the amount payable is equal to the contracted delivered price per gallon, less
transportation and storage charges, and less a commission. The amount payable for distillers grain and corn oil is equal to the
market price at the time of sale less a commission.

Recoverability of property, plant and equipment

The Company has two asset groups, its ethanol
facility in Fairmont and its ethanol facility in Wood River, which are evaluated separately when considering whether the carrying
value of these assets has been impaired. The Company continually monitors whether or not events or circumstances exist that would
warrant impairment testing of its long-lived assets. In evaluating whether impairment testing should be performed, the Company
considers several factors including the carrying value of its long-lived assets, projected production volumes at its facilities,
projected ethanol and distillers grain prices that we expect to receive, and projected corn and natural gas costs we expect to
incur. In the ethanol industry, operating margins, and consequently undiscounted future cash flows, are primarily driven by the
crush spread. In the event that the crush spread is sufficiently depressed to result in negative operating cash flow at its facilities
for an extended time period, the Company will evaluate whether an impairment of its long-lived assets may have occurred. Recoverability
is measured by comparing the carrying value of an asset with estimated undiscounted future cash flows expected to result from the
use of the asset and its eventual disposition. An impairment loss is reflected as the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Fair value is determined based on the present value of estimated expected future cash
flows using a discount rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature
of the assets. As of March 31, 2012, no circumstances existed that would indicate the carrying value of long-lived assets may not
be fully recoverable. Therefore, no recoverability test was performed.

Income Taxes

The Company accounts for income taxes using
the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. The Company regularly reviews historical and anticipated future pre-tax results of operations to determine
whether the Company will be able to realize the benefit of its deferred tax assets. A valuation allowance is required to reduce
the potential deferred tax asset when it is more likely than not that all or some portion of the potential deferred tax asset will
not be realized due to the lack of sufficient taxable income. The most significant component of our deferred tax asset balance
relates to our net operating loss and credit carryforwards. As the Company has incurred tax losses since its inception and expects
to continue to incur tax losses for the foreseeable future, we will provide a valuation allowance against deferred tax assets until
the Company believes that such assets will be realized.

Recent accounting pronouncements

From time to time, new accounting pronouncements
are issued by standards setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, our
management believes that the impact of recently issued standards that are not yet effective will not have a material impact on
our consolidated financial statements upon adoption.

35

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

We are subject to significant risks relating
to the prices of four primary commodities: corn and natural gas, our principal production inputs, and ethanol and distillers grain,
our principal products. These commodities are also subject to geographic basis differentials, which can vary considerably. In recent
years, ethanol prices have been primarily influenced by gasoline prices, the availability of other gasoline additives and federal,
state and local laws, regulations, subsidies and tariffs. Distillers grain prices tend to be influenced by the prices of alternative
animal feeds.

We expect that lower ethanol prices will
tend to result in lower profit margins even when corn prices decrease due to the significance of fixed costs. The price of ethanol
is subject to wide fluctuations due to domestic and international supply and demand, infrastructure, government policies, including
subsidies and tariffs, and numerous other factors. Ethanol prices are extremely volatile. From April 1, 2010 to March 31, 2012,
the Chicago Board of Trade (“CBOT”) ethanol prices have fluctuated from a low of $1.47 per gallon in June 2010 to a
high of $3.07 per gallon in July 2011 and averaged $2.24 per gallon during this period.

We expect that lower distillers grain prices
will tend to result in lower profit margins. The selling prices we realize for our distillers grain are largely determined by market
supply and demand, primarily from livestock operators and marketing companies in the U.S. and internationally. Distillers grain
is sold by the ton and can either be sold “wet” or “dry”.

We anticipate that higher corn prices will
tend to result in lower profit margins, as it is unlikely that such an increase in costs can be passed on to ethanol customers.
The availability as well as the price of corn is subject to wide fluctuations due to weather, carry-over supplies from the previous
year or years, current crop yields, government agriculture policies, international supply and demand and numerous other factors.
Using recent corn prices of $6.25 per bushel, we estimate that corn will represent approximately 85% of our operating costs. Historically,
the spot price of corn tends to rise during the spring planting season in April and May and tends to decrease during the fall harvest
in October and November. From April 1, 2010 to March 31, 2012, the CBOT price of corn has fluctuated from a low of $3.25 per bushel
in June 2010 to a high of $7.86 per bushel in June 2011 and averaged $5.80 per bushel during this period.

Higher natural gas prices will tend to
reduce our profit margin, as it is unlikely that such an increase in costs can be passed on to ethanol customers. Natural gas prices
and availability are affected by weather, overall economic conditions, oil prices and numerous other factors. Using recent corn
prices of $6.25 per bushel and recent natural gas prices of $2.20 per Mmbtu, we estimate that natural gas will represent approximately
3% of our operating costs. Historically, the spot price of natural gas tends to be highest during the heating and cooling seasons
and tends to decrease during the spring and fall. From April 1, 2010 to March 31, 2012, the New York Mercantile Exchange (“NYMEX”)
price of natural gas has fluctuated from a low of $2.12 per Mmbtu in March 2012 to a high of $5.19 per Mmbtu in June 2010 and averaged
$3.92 per Mmbtu during this period.

To reduce the risks implicit in price fluctuations
of these four principal commodities and variations in interest rates, we plan to continuously monitor these markets and to hedge
a portion of our exposure, provided we have the financial resources to do so. In hedging, we may buy or sell exchange-traded commodities
futures or options, or enter into swaps or other hedging arrangements. While there is an active futures market for corn and natural
gas, the futures market for ethanol is still in its infancy and very illiquid, and we do not believe a futures market for distillers
grain currently exists. Although we will attempt to link our hedging activities such that sales of ethanol and distillers grain
match pricing of corn and natural gas, there is a limited ability to do this against the current forward or futures market for
ethanol and corn. Consequently, our hedging of ethanol and distillers grain may be limited or have limited effectiveness due to
the nature of these markets. Due to the Company’s limited liquidity resources and the potential for required postings of
significant cash collateral or margin deposits resulting from changes in commodity prices associated with hedging activities, the
Company is currently able to engage in such hedging activities only on a limited basis. We also may vary the amount of hedging
activities we undertake, and may choose to not engage in hedging transactions at all. As a result, our operations and financial
position may be adversely affected by increases in the price of corn or natural gas or decreases in the price of ethanol or unleaded
gasoline.

36

We have prepared a sensitivity analysis
as set forth below to estimate our exposure to market risk with respect to our projected corn and natural gas requirements and
our ethanol and distillers grain sales for the last nine months of 2012. Market risk related to these factors is estimated as the
potential change in pre-tax income, resulting from a hypothetical 10% adverse change in each of our four primary commodities, independently,
based on current prices as of March 31, 2012, excluding activity we may undertake related to forward and futures contracts used
to hedge our market risk. The following amounts reflect the Company’s expected 2012 production for the last nine months of
the year. Actual results may vary from these amounts due to various factors including significant increases or decreases in the
LLC’s production capacity during the last nine months of 2012.

Volume

Units

Price per Unit at March 31, 2012

Hypothetical Adverse Change in Price

Change in Nine Months
Ended December 31,
2012 Pre-tax
Income

(in millions)

(in millions)

Ethanol

171.2

Gallons

$

2.20

10

%

$

(37.7

)

Dry Distillers

0.3

Tons

$

194.00

10

%

$

(5.8

)

Wet Distillers

0.5

Tons

$

67.00

10

%

$

(3.4

)

Corn

61.6

Bushels

$

6.25

10

%

$

(38.5

)

Natural Gas

4.8

Mmbtu

$

2.20

10

%

$

(1.1

)

We are subject to interest rate risk in
connection with our Senior Debt Facility. Under the facility, our bank borrowings bear interest at a floating rate based, at our
option, on LIBOR or an alternate base rate. As of March 31, 2012, we had borrowed $173.6 million under our Senior Debt Facility.
A hypothetical 100 basis points increase in interest rates under our Senior Debt Facility would result in an increase of $1,736,000
on our annual interest expense.

At March 31, 2012, we had $11.7 million
of cash and cash equivalents invested in both standard cash accounts and money market mutual funds held at three financial institutions,
which is in excess of FDIC insurance limits.

37

ITEM 4. CONTROLS AND PROCEDURES

Controls and Procedures

The Company’s management carried out
an evaluation, as required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), with the
participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures, as of the end of our last fiscal quarter. Based upon this evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly
Report on Form 10-Q, such that the information relating to the Company and its consolidated subsidiaries required to be disclosed
in our Exchange Act reports filed with the SEC (i) is recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms and (ii) is accumulated and communicated to the Company’s management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In addition, the Company’s
management carried out an evaluation, as required by Rule 13a-15(d) of the Exchange Act, with the participation of our Chief Executive
Officer and our Chief Financial Officer, of changes in the Company’s internal control over financial reporting. Based on
this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that no change in internal control over financial
reporting occurred during the quarter ended March 31, 2012, that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting.

38

PART II. OTHER INFORMATION

ITEM 6.

EXHIBITS

Number

Description

3.1

Amended and Restated Certificate of Incorporation of BioFuel Energy Corp. (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed February 8, 2011).

3.2

Amended and Restated Bylaws of BioFuel Energy Corp dated March 20, 2009, (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed March 23, 2009).

Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.